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Friday, September 3, 2010

White House considering major tax breaks for businesses, sources say

Thursday, September 2, 2010; 6:23 PM

With the recovery faltering less than two months before the November congressional elections, President Obama's economic team is considering another big dose of stimulus in the form of tax breaks for businesses - potentially worth hundreds of billions of dollars, according to two people familiar with the talks.

Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit, say people familiar with the talks who spoke on the condition of anonymity in order to describe private deliberations.

Permanently extending the research credit would cost roughly $100 billion over the next decade, tax experts said. And depending on its form and duration, a payroll tax holiday could let businesses keep more than $300 billion they would otherwise owe the Treasury.

While significantly less than last year's $814 billion stimulus package, both ideas would be far more dramatic than anything the White House had been expected to propose.

The staff-level discussions are in preliminary stages. But with the unemployment rate expected to rise again in new jobs numbers due out Friday, such a move could serve both to spur hiring and to combat Republican charges that Obama's tax policies would hurt small businesses.

More spending on infrastructure - particularly transportation projects - is also under discussion, sources said. But a person familiar with the talks said it would be easier for a package consisting purely of tax cuts to "avoid the stain of a 'bailout' or 'stimulus' label." Although many economists say the stimulus package helped pull the nation out of recession, it has been attacked relentlessly as ineffective by Republicans and is viewed with deep skepticism by voters.

Cutting business taxes would also pair well with another Democratic priority: extending Bush administration tax cuts for the middle class. Obama wants to let cuts that benefit the nation's richest families expire on schedule in January, but Republicans say that move would slap the most prosperous job-creating small businesses with higher taxes. Replacing the tax cuts for the rich with targeted business tax cuts could defuse that argument and avoid a backlash among business owners on the campaign trail.

White House officials cautioned that no tax cuts have been decided upon, and that a smaller proposal than the ones under discussion could emerge.

"There have been a lot of reports and rumors on different options being considered - many of which are incorrect," said White House spokeswoman Amy Brundage. "The options under consideration build on measures the president has previously proposed, and we are not considering a second stimulus package. The president and his team are discussing several options, as they have been for months, and no final decisions have been made."

Obama could roll out additional measures on the economy as soon as next week, the sources said, when he has scheduled to deliver remarks on the economy in Milwaukee and Cleveland. Obama has also scheduled a news conference for next Friday.

Senate leaders hope to begin debating in September extensions on tax provisions that are set to expire.